Trading Update

Alpha Group International PLC

25 July 2023

 

25 July 2023

Alpha Group International plc

("Alpha" or the "Group")

Trading Update

Alpha Group International plc (AIM: ALPH) a high-tech, high-touch provider of financial solutions, dedicated to corporates and institutions operating internationally, today announces a trading update for the six-month period ended 30 June 2023.

Key Highlights for H1 2023

-	Group revenue increased by 20% to £55m (H1 2022: £46m).
-	FX Risk Management revenue increased by circa 21% to £39m (H1 2022: £32m).
-	Alternative Banking revenue increased by 17% to £16m (H1 2022: £14m), and increased 32% when including the net increase in deferred revenue from account fees (£4.9m to £7m).
-	Delivered strong operating margins whilst continuing with accelerated investment programme.
-	Other operating income from interest on client balances of £33m in H1, driving exceptional profit growth, with average Alternative Banking client balances in Q2 2023 of £1.9bn and blended average interest rates of 3.8% (Q1 2023: £1.6bn and 2.8%).
-	Strong cash and liquidity position with adjusted net cash increasing 26% in six months to over £142m.1
-	New fund finance offering launched and already generating revenue.
-	Recent trading encouraging; on track to deliver our 2023 expectations.

¹ The Group's statutory cash position can fluctuate significantly from day to day due to the impact of changes in, collateral paid to banking partners, margin received from clients, early settlement of trades, or the unrealised mark to market profit or loss from client swaps.  'Adjusted net cash' therefore excludes these items.

Overview

Despite a challenging economic backdrop in H1, the Group has continued to grow strongly whilst delivering on its accelerated investment programme and maintaining strong underlying profit margins. We were pleased that the underlying operating performance was in line with expectations which, when combined with exceptional interest income from client cash balances, delivered an outstanding Group performance. Group revenues increased by 20% to £55m (H1 2022: £46m) with strong performances from both our businesses. When taking into account the net increase in deferred revenue from Alternative Banking account fees (which is invoiced, but not yet recognised as revenue) the Group delivered 24% growth (deferred revenue grew from £4.9m to £7m). In addition, we generated a further £33m in other operating income, as interest rates and the adoption of our alternative banking solution, both continued to increase.

Outlook

June was a record month for the Group and our pipeline of activity for H2 continues to grow. We are therefore confident that the Group is on track to deliver another strong year of revenue and underlying profit growth in line with expectations. Given the momentum in our Alternative Banking business and the interest rate outlook, we also expect Other Operating Income to remain very strong, which will help drive substantial cash flows over the year.

FX Risk Management ("FXRM")

When faced with supply chain shortages in 2022, many corporates overstocked and therefore entered H1 2023 with excess inventory. In H1 2023 however, supply chain pressures have fallen to record lows, and this, combined with the increased cost of borrowing and macro uncertainty, means we saw companies in H1 taking a more short-term and conservative approach to their sales forecasts, the amount of stock they hold, and consequently their future orders.² Even for companies that don't hold inventory (such as those in the services sector) the macro uncertainty has resulted in a noticeably more conservative approach to forecasting, and thus hedging.

As a division that helps clients hedge their orders and forecasts, the combination of the above factors has been to temporarily reduce our corporate clients' appetite for FX hedging contracts. Despite this, our Corporate FXRM revenues continued to grow; revenue from forwards was broadly flat and revenue from spot contracts (which are inherently shorter term in nature and therefore lower-margin) increased by almost 50%, demonstrating the strength and relevance of our service throughout different economic cycles.  

Our Institutional FXRM offering has continued to show particularly strong growth in both spot and hedging over the period, and is benefitting from the team's growing reach as well as cross-selling opportunities through the Group's alternative banking solution.

Collectively our FXRM division delivered revenue growth of 21% in H1, with client numbers increasing from 1,047 to 1,089 in the period. These divergent growth rates reflect a continued focus on larger, higher revenue potential businesses, as well as an evolution of our credit appetite in response to the macro environment, resulting in a number of clients having hedging facilities reduced or removed over the past 18 months. Consequently, average revenue per client has increased by 6% in the last twelve months. Encouragingly, FXRM saw a record month in June for both total revenue and Portfolio Managers achieving their new business quotas.

All of our overseas offices have delivered strong year-on-year revenue growth, with the exception of Toronto, which was expected. We are however pleased to report that Toronto has resumed its growth trajectory, with revenues increasing in H1 2023 against H2 2022.

² Federal Reserve Bank of New York, Global Supply Chain Pressure Index

Alternative Banking

Across the alternative investment market globally, the decline in deal activity in the second half of 2022 has continued into 2023, with Preqin reporting that both deal volumes and flows were significantly down in Q1 against the same period last year, across all of the key asset classes we serve. This backdrop has meant fewer accounts needed to be opened and less payments or FX spot transactions made. Despite the significant decline in the market, we continued to deliver two record quarters, with revenues increasing 17% against the same period last year.  In addition, deferred revenues from account fees grew from £4.9m to £7m, which provides further confidence and visibility going forward. When taking into account the net increase in deferred revenue, growth would be 32%.  We also increased our account numbers by over 1,150 during H1, taking our total to 5,350 to date. Our investments in compliance, client services and technological automation have also continued in earnest, and we are already seeing the significant benefits of this on operational gearing.

The operational progress we have made to date means our market-leading offering is even stronger than it was at the start of the year, and we continue to deepen our relationships with fund managers, service providers and fund administrators. As adverse market conditions and activity levels improve, we will be well placed to capitalise on this.

Balance sheet

Average Alternative Banking client balances in Q2 of £1.9bn and a blended average interest rate of 3.8% resulted in over £33m of other operating income (Q1 2023: £1.6bn and 2.8%), helping to grow our adjusted net cash by 26% to over £142m at the period end. With more clients adopting our alternative banking solution, and interest rates at current levels, this is expected to remain a significant tailwind for the Group, creating opportunities for new and accelerated strategic investments.  We look forward to updating shareholders further on our progress in this regard in our interim report.

Morgan Tillbrook, Chief Executive Officer said:

"It is testament to our strategy, offering, and most importantly, our team, that we have continued to grow strongly in spite of some challenging macro-economic headwinds. I am proud that the operational progress and investments that we have continued to make during this period remain very much long-term focused. I am therefore confident that our prospects remain excellent, and that as macro-economic conditions improve, we remain in a great position to capitalise on the sizeable market opportunity in front of us."

Enquiries:

Alpha Group International plc	via Alma PR
Morgan Tillbrook, Founder and CEO
Tim Powell CFO
Liberum Capital Limited  (Nominated Adviser and Sole Broker)	Tel: [phone]
Max Jones
Ben Cryer
Kane Collings
Alma PR (Financial Public Relations)	Tel: [phone]
Josh Royston
Andy Bryant
Kieran Breheny

Notes to Editors

Alpha is a high-tech, high-touch provider of enhanced financial solutions dedicated to corporates and institutions operating internationally. Working with clients across 50+ countries, we blend intelligent human capabilities with new technologies to solve complex problems across three key areas: FX risk management, global accounts and mass payments.

Key to our success is our team - over 350 people based across seven global offices, brought together by a high-performance culture and a partnership structure that empowers them to act as owners of our business.

Despite being an established business listed on the London Stock Exchange, we remain relentlessly focused on maintaining the same level of operational agility and client focus we had when we first started in 2009. This dynamic, combined with the passion of our people, have enabled us to make a substantial and enduring difference to our clients, and deliver a growth story to match.

 

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